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Move to reduce levies set to ease the pressure on credit unions

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Ed Farrell: Lowering of levies will help the sector. Photo: Maxwells Dublin

Ed Farrell: Lowering of levies will help the sector. Photo: Maxwells Dublin

Ed Farrell: Lowering of levies will help the sector. Photo: Maxwells Dublin

Credit unions have welcomed moves to reduce two levies imposed on the sector by the State.

They said the decision will go some way to alleviating the impact of the Covid-19 pandemic on credit union balance sheets.

Credit unions are struggling with excess deposits and poor demand for loans, which means their income is under pressure.

Finance Minister Paschal Donohoe announced that both the Credit Institution Resolution levy and the Credit Union Stabilisation levy for next year will be reduced.

The levies are a percentage of the assets of credit unions.

Collectively the levies are expected to cost the sector €5.3m next year, a reduction of about 56pc from €12m last year.

The Credit Institutions Resolution Fund levy is designed to provide funding for a financial institution that has to be wound up.

Credit unions are now the only financial institutions contributing to the resolution fund.

Last year, the Department of Finance and Central Bank decided that the Resolution Fund should be grown from €35m to €65m by 2025.

The Credit Union Stabilisation fund is effectively a rainy day fund for the sector.

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Minister Donohoe said: "Having taken into consideration my legislative responsibilities, the views of the sector, the Credit Union Advisory Committee, and the Central Bank, and in the context of the current environment that credit unions are operating in, I believe that the revised levy rates are appropriate."

The Irish League of Credit Unions (ILCU) welcomed the move, which it said followed extensive lobbying by it over several years.

It said one of the lobbying aims was to highlight the financial impact these levies are having on not-for-profit credit unions whose sole function is to serve the financial needs of members in their communities.

ILCU chief executive Ed Farrell said the announcement means credit unions will pay €2.7m less in 2021 than they paid in 2020.

"This is a significant cost saving for credit unions which will go some way to alleviating the impact of the Covid-19 pandemic on credit union balance sheets," Mr Farrell said.

The other representative body for the sector, the Credit Union Development Association (CUDA), also welcomed the announcement.

"In particular we appreciate Minister Donohoe's decision to heed our concerns in relation to the Stabilisation Fund," said CUDA chief executive Kevin Johnson.

"While CUDA continues to support the purpose of a stabilisation fund, as it stands, it has yet to be claimed against, as it is both difficult and costly to access."

The number of credit unions in the Republic had fallen to 241 by the end of last year from 406 in 2011. Mergers brought on by a fall in lending and income pressures have prompted the tie-ups.

Loans across the sector amounted to 28pc of assets at the end of September 2019, according to a Central Bank report. The optimal loan-to-assets ratio is about 50pc.

Combined membership of credit unions is about 3.4 million people.


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